It’s no secret that I’m not the biggest Dave Ramsey fan in the world.
Without a doubt, his budgeting and get-out-of-debt advice is fantastic. It’s his investing advice that I take issue with. I think most of it is bad, and some is downright dangerous.
But there’s at least one diamond in the extensive rough of his investment insights, a quote I’ve heard him repeat on his show countless times:
Don’t invest in something you don’t understand.
This idea applies across pretty much any investment, including real estate. For example, if you’ve only invested in single family homes, you shouldn’t go blindly buy an office building – that’s a recipe for disaster.
But here’s the thing: “understanding” doesn’t mean sticking only to what’s familiar. It means doing your homework, expanding your knowledge, and being willing to look beyond your immediate surroundings.
And when it comes to real estate markets, this advice is especially relevant. You might feel most comfortable investing in deals in your local market because it’s what you know.
But if you limit yourself to just that, you could be missing out on incredible opportunities in markets that you aren’t as familiar with (yet). The key is to broaden your understanding, do your research, and embrace the potential that lies beyond your backyard.
Avoiding Home-Market Bias
Let’s start with a concept that’s familiar to many stock investors: home-country bias.
It’s the idea that investors tend to favor companies from their own country because it’s what they know best. And while this typically isn’t a huge issue for US investors (we have the largest and strongest stock market in the world, after all), home-country bias can lead to missed opportunities in other markets that might offer better growth prospects.
The same principle applies to real estate.
If you’re only looking at the market where you live or the one down the road, you’re likely overlooking opportunities that could offer better returns, diversification, and/or reduced risk.
And even if the real estate market in your area is stable, that doesn’t necessarily mean it’s the best place to invest right now. Other markets might be experiencing faster growth, better economic conditions, or unique opportunities that simply don’t exist in the markets you live in or are most familiar with.
Diversification & Portfolio Stability
One of the most compelling reasons to invest outside your local market is diversification.
Now I know Warren Buffett is known for saying that “diversification is protection against ignorance,” but most passive real estate investors are best served by not having all their investment eggs in one market basket.
For example, let’s say that all of your investments were in deals in a coastal Florida market, and that area takes a direct hit from a major hurricane. Or maybe that you had a heavy concentration of investments in San Francisco Financial District office buildings, and almost overnight everyone starts working from home.
You don’t want a natural disaster, economic downturn, political instability, or some other crisis to suddenly endanger a significant portion of your wealth.
Investing in deals in multiple markets helps to mitigate these risks. A localized issue in one place won’t bring down your entire portfolio.
Higher ROI Potential
Maybe you’re happy with the returns your local market offers. While that’s good, it’s still worth considering that other markets might be doing better.
Real estate markets are cyclical, but not all markets are on the same cycle at the same time. While your local market might be cooling down, others might be heating up.
By keeping an eye on various markets, you can identify areas with favorable conditions – like strong economic and population growth, low unemployment, or increasing infrastructure investments – and position yourself to ride that wave of opportunity.
In the immediate aftermath of the pandemic, many smart investors saw that markets in the Sunbelt (mostly southern and southwestern states) were experiencing a tremendous influx of migration from other parts of the country, and completely refocused their investing to these new high-growth markets. For the most part, they’ve been rewarded for that decision.
This is a great example of capitalizing on trends and boosting your overall returns by being willing to look at new markets.
Access to Niche Markets
Investing outside your local market also opens the door to specialized opportunities.
Let’s say you’re interested in short-term vacation rentals because of their higher cash flow potential, but you live in an area that doesn’t have a lot of tourism or other drivers for transient travel.
To pursue an STR investment strategy, you’d naturally have to look in markets that do have those drivers.
The same goes for other niches like student housing, industrial buildings and warehouses, or even specific property types that aren’t prevalent in your local area (which is my main issue since there aren’t a lot of 20+ unit apartment buildings in East Tennessee). By expanding your horizons, you gain access to these niche markets, which can offer unique opportunities and higher returns that you simply can’t get at home.
Think Beyond Your Backyard
Investing outside your local market might feel uncomfortable at first, but that discomfort is often where growth happens.
By exploring new markets, you’re not just chasing higher returns—you’re reducing risk, accessing new opportunities, and positioning yourself for long-term success.
So, the next time you’re looking at your portfolio, ask yourself: “Am I limiting my potential by staying too close to home?” If the answer is yes, it might be time to start embracing the opportunities new markets can offer.